PSA close to ‘tipping point’ on utility loans

By Allen Worrell Editor

November 7, 2013

With so many water and sewer projects being funded in Carroll County over the last few years, the Carroll County Public Service Authority (PSA) may be close to reaching “the tipping point” on borrowing money for more projects in the near future.

That was the view of Carroll County PSA Executive Director Gary Larrowe during the authority’s Oct. 21 meeting. The discussion came up after Fancy Gap District PSA member William Payne asked about the status of the Meadowbrook Water Project in Cana.

“People are asking me questions,” Payne said. “When will we get water? When will something be done? What do I tell them?”

Larrowe said right now the project is at the funding agency level trying to get the dollars to fund the project. He said there are a couple of options. He said the PSA could go to a local bank and borrow money to do the project, however the payback term would be so expensive on a per connection basis it would be “almost cost prohibitive to do it.” In that case, the project would not produce enough cash flow and would have to be subsidized at a substantial rate.

The other option, Larrowe said, would be to wait to see if federal funding agency USDA could work out a 40-year term on a loan with Carroll County to make the project happen.

“We could probably end up getting something turned around in three to four months if we were planning on subsidizing the project at a substantial rate. If we were planning on not subsidizing and taking advantage of the 40-year terms plus the lower interest rates that could be available, then we will have to just wait until we get into the actual funding cycle,” Larrowe said.

Larrowe said he sits on the National Association of Counties Ag Committee. He recently received information on the Farm Bill that “hopefully will be passed” that includes $150 million in backlog of water and sewer projects.

“This would potentially be one of them and they might end up funding that. Who knows if they would or not, but we are not talking about a substantial amount of money on that one comparatively speaking as opposed to some of the other projects,” Larrowe said. “However, it’s still an expensive endeavor in terms of you or I. At this point what I might suspect is we wait on the funding sources that might give us the best rates and the best possibility of repayment on that.”

“The USDA, in looking at the loan, is the amount the PSA owes now, is that allowed,” Payne asked? “Does some of that have to be paid down before we get any more loans?”

Larrowe said it is not necessarily the PSA. He said the county currently has some loans with the Virginia Resource Authority “on Hebron, White Town, and the Elementary School that was giving sewer and water services,” to those areas.

“We paid for those with VRA dollars rather than USDA dollars. And one of the things that happens, just as if you have a first mortgage or second mortgage on a home, if you get a second mortgage, you have to have approval of the first mortgage,” Larrowe said. “The lien holder has to provide it is okay to carry on extra debt. And so we are approaching, we have not gotten to the point of tipping, but we are certainly approaching the point of where VRA is getting more and more critical of the amount of money that is out there that is USDA on the second mortgage, in essence, trying to put in layman’s terms. That is part of the issues that are associated.”

Larrowe said the county has several larger projects, such as Exit 1, that has already been funded with USDA dollars. That project will soon be closed on, he said. The Coon Ridge project has also been funded and is under construction. Then there is the Fries Road Project that has been funded, leaving the PSA with the Meadowbrook project and several other smaller projects.

“If I had a crystal ball, I would say we are getting closer and closer to that point of not being able to borrow more money for these projects just because of the amount that is out there, not because there is not cash flow for it. Because what we end up trying to do is make sure we can make these projects work for us,” Larrowe said. “But when you start looking at the rations of borrowing to the debt service, then you end up having some issues. We are pushing these things out. We have had exponential growth in water and sewer over the past few years in Carroll County. To pay down the loan is not necessarily the terms we will be faced with, but it is something we need to be cognizant of in those areas.”